I would like to get some help on identifying whether a country is in crisis or not.
1- I usually check the amount of "debt", compare it to the "total GDP". If it is high compared to the GDP, I assume that a country is on the verge of collapse.
2- I check the "current balance account", it it is negative... then I would say that this would eventually lead to more debt. Apparently, this is not how economists evaluate an economy of a certain country,
Please help me out here. According to what i'm reading, all Greece, Spain, Iran and Argentina aren't doing well at all... but the numbers vary drastically
Debt ratio to GDP Greece: debt is 196% its GDP
Spain: debt is 179% its GDP
Iran: debt is only 2% of its GDP
Argentina: debt is 17 % of its GDP
just take a look at the current account balance, you can also see Argentina and Iran are doing much better than Spain and Greece So are these statistics manipulated by governments? or am i approaching this from the wrong angle?
Greece
Debt - external $583.3 billion (30 June 2011)
GDP (purchasing power parity) $298.1 billion (2011 est.)
Spain
Debt - external $2.57 trillion (30 June 2011)
GDP (purchasing power parity) $1.432 trillion (2011 est.)
Iran
Debt - external
$17.9 billion (31 December 2011 est.)
GDP (purchasing power parity)
$1.003 trillion (2011 est.)
Argentina Debt - external
$136.8 billion (31 December 2011 est.)
$725.6 billion (2011 est.)
Maybe the signs of a country already in or about to have a crisis are:
1. How fast the money supply is increasing. The quicker that is happening, the more dangerous. Austrian Economics says it means a business cycle, a boom followed by a recession, is inevitable.
2. Percent of GDP that the govt eats up. I don't know a number, but if it's too high, that means the country's resources are being wasted.
3. High chronic unemployment. This, too, means wasted resources, in this case labor. In addition, since in a free market there is no unemployment, certainly not chronic, it means there is a lot of govt meddling, asymptom of parasitism and wasted resoutces other than just labor. Of course, the social damage, crime and so forth, is also heightened.
4. Living beyond its means, meaning consuming more than it is producing and/or gobbling up its acquired capital base, like farme reating the chickens that lay him eggs. One possible indication of this is a chronic high trade deficit, with the imported stuff being primarily consumer goods, as opposed to raw materials used to increase production.
5. High number of parasitic jobs. This is a hidden form of problem three. In addition it means money is being given to parasites who merely consume, a not so hidden form of problem four. Parasitic jobs include all govt jobs, and all jobs that the employer is coerced into providing or overpaying for, such as all union jobs. A job can be partially parasitic, if the employee produces to some extent, but is over paid either in wage or in benefits.
6. Govt intervention [in any form] in big chunks of the economy, such as housing, retirement funds, education, healthcare, protection of the environment, hiring and firing practices. Whatever the govt touches is sure to involve massive amounts of wastage of resources. The more areas and the larger the scope of govt involvement, the quicker the country is heading for its doom.
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It's easy to refute an argument if you first misrepresent it. William Keizer
Could you clarify what you mean by "economic collapse". If you mean government default and the corresponding difficulties, then you're onto something, although there's still a degree of oversimplification going on in your analysis, but there are many more types of "economic collapse" than simply government default. If you are looking for the latter then there's a lot more to look at than simply debt to GDP or even related data.
So you want US Treasuries in your portfolio?
Did I mention anything in my post that said I wanted Treasuries? I said that Treasury prices were making all time record highs. If you want a bargain, you have to buy at the bottom, not at the top. That said, it is wise to invest in short term Treasuries during the event of a financial crisis. They are less likely to be defauted on than practically any other government obligations including longer maturity notes, bonds, and other government obligations (social security, medicare, etc.)
Thanks a lot Smiling Dave, this is the kind of answer I was looking for, this is very helpful.
Is there any way to get some statistics on the increase of money supply? Does the government release such information?
I find this as a very useful indicator, to put it under the test, I got the government spending percentage as part of the GDP
Argentina: 15.4%
Iran: 11.4%
Spain: 20.28 %
Greece:17.45 %
Still I find it not too obvious to tell that Iran is in crisis, since its spending is only 11 %, not too high compared to the rest of the world
I guess there is no way to measure the percentage of parasitic jobs, or am i wrong?
Again, thanks a lot Dave, I visited your blog, didn't have enough time to read much though, but I will certainly visit again later, I have a lot to hearn from you
Thank you for your kind words, supermario.
As for finding out the increase in the money supply, the govt stopped publishing that statistic a few years ago, around 2005. You have to look around for people with expertise who use indirect info to make an educated guess. There are such things on the internet, sorry I dont' remember where.
A rough and incomplete measure of amount of parasitic jobs might be to add up number of govt employees together with say, half the number of union employees. I'm making the very rough and unsupported assumption that with benefits and pensions and so forth, union jobs are paid double what they should be, and govt employees are worthless.
As for Iran, maybe it has other problems then, not huge govt spending.